Warren asks FBI to find out why there were no criminal prosecutions from crisis probe referrals

Senator Elizabeth Warren, a Democrat from Massachusetts, asked the Inspector General of the Department of Justice and the Director of the FBI, James Comey, for an investigation into the lack of individual criminal prosecutions for potential law-breaking related to the 2008 financial crisis.

Senator Elizabeth Warren wants law enforcement officials to tell her why none of the individuals referred to them by the Financial Crisis Inquiry Commission for potential law-breaking related to the crisis were ever prosecuted.

In March, the FCIC revealed there were nine referrals of individuals and 14 referrals of corporations to the DOJ in 2010 for “serious indications of violation(s)” of federal securities or other laws. A September 12, 2010 memo prepared by FCIC legal staff and sent to all of the FCIC Commissioners contains information on seven of referrals and includes some big names.

The entire former leadership team of Citigroup
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, as well as the bank itself is mentioned in the memo. CEO Chuck Prince, its board chairman Robert Rubin, and CFO Gary Crittenden are recommended as potential subjects of further investigation for statements made in relation to a 2010 civil settlement between the Securities and Exchange Commission with Citigroup arising from the company’s “statements to the market in 2007 that the company had only $13 billion in subprime exposure when, in fact the company ultimately disclosed $55 billion in subprime exposure.”

The memo also notes another potential violation of the law related to Citigroup’s annual and quarterly reports. The Sarbanes-Oxley Act requires the CEO and CFO to certify that annual and quarterly reports do “not contain any untrue statement ... or omit to state a material fact.”

The FCIC memo notes two potential legal violations as a result of Goldman Sachs’
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behavior in connection with collateral calls to American International Group Inc.
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for structured products that had, in Goldman’s Sachs’ view, lost significant market value. The referral memo states that, “[i]f Goldman knew it was about to lower the values of the securities it was selling ... or if Goldman had a fiduciary relationship with any of the buyers, this could represent a violation of the 1934 Act or other laws. Second, this could also be a 1933 Act violation if this information was omitted from an offering document” for the securities.

Also with regard to the AIG credit default swaps portfolio, the FCIC memo describes potential fraud by former AIG CEO Martin Sullivan and former CFO Stephen Bensinger in investor calls and by auditor PricewaterhouseCoopers as a potential “aide[r] and abettor” of fraud.

The allegations focus on a Dec. 5, 2007 investor call with CEO Sullivan when AIG reported that they were “highly confident” there would be “no realized losses” on certain credit default swap portfolios — despite the fact that the company had made “undisclosed adjustments” including a “negative basis” adjustment and a “structured mitigant” adjustment that hid losses of $5.9 billion. The FCIC investigation revealed that Sullivan, Bensinger and AIG’s auditors, PwC, were all aware of the “negative basis” adjustment prior to the December 5, 2007 call.

None of these individuals or organizations have ever been criminally prosecuted.

Goldman Sachs and PwC did not respond to requests for comment on the FCIC referrals.

A spokesman from AIG declined comment. A spokesman from Citigroup declined comment and noted that none of the executives mentioned are currently with the company.

Warren urged the DOJ IG and the FBI to open an investigation into “the process by which DOJ handled FCIC referrals of corporate and individual misbehavior that harmed millions of Americans.”

Francine
McKenna

Francine McKenna is a MarketWatch reporter based in Washington, covering financial regulation and legislation from a transparency perspective. She has written about accounting, audit, fraud and corporate governance for publications including Forbes, the Financial Times, Accountancy and the American Banker. McKenna had 30 years of experience at banks and professional-services firms, including at PwC and KPMG, before becoming a full-time writer.

Francine
McKenna

Francine McKenna is a MarketWatch reporter based in Washington, covering financial regulation and legislation from a transparency perspective. She has written about accounting, audit, fraud and corporate governance for publications including Forbes, the Financial Times, Accountancy and the American Banker. McKenna had 30 years of experience at banks and professional-services firms, including at PwC and KPMG, before becoming a full-time writer.

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